Correlation Between Visa and Cognizant Technology

Can any of the company-specific risk be diversified away by investing in both Visa and Cognizant Technology at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Visa and Cognizant Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Visa Class A and Cognizant Technology Solutions, you can compare the effects of market volatilities on Visa and Cognizant Technology and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Visa with a short position of Cognizant Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Cognizant Technology.

Diversification Opportunities for Visa and Cognizant Technology

0.88

Correlation Coefficient

Visa  Cognizant Technology

Very poor diversification

The 3 months correlation between Visa and Cognizant is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Cognizant Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognizant Technology and Visa is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Visa Class A are associated (or correlated) with Cognizant Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cognizant Technology has no effect on the direction of Visa i.e., Visa and Cognizant Technology go up and down completely randomly.

Pair Corralation between Visa and Cognizant Technology

Taking into account the 90-day investment horizon Visa is expected to generate 1.2 times less return on investment than Cognizant Technology. But when comparing it to its historical volatility, Visa Class A is 1.31 times less risky than Cognizant Technology. It trades about 0.12 of its potential returns per unit of risk. Cognizant Technology Solutions is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  6,824  in Cognizant Technology Solutions on September 13, 2024 and sell it today you would earn a total of  774.00  from holding Cognizant Technology Solutions or generate 11.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Visa Class A  vs.  Cognizant Technology Solutions

Visa Class A

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Cognizant Technology

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cognizant Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Visa and Cognizant Technology

The main advantage of trading using opposite Visa and Cognizant Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, Cognizant Technology can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Cognizant Technology will offset losses from the drop in Cognizant Technology's long position.

The idea behind Visa Class A and Cognizant Technology Solutions pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.